The U.S. Department of Justice ("DOJ") announced on February 6, 2012 that medical device company Smith & Nephew Inc. has agreed to pay over $22 million to settle Foreign Corrupt Practices Act ("FCPA") allegations that it paid government-employed doctors in Greece to use its products. The company agreed to disgorge $5.4 million in wrongful profits to the Securities and Exchange Commission ("SEC") and pay a $16.8 million penalty to the DOJ under a deferred prosecution agreement. The government's enforcement action demonstrates how pharmaceutical and medical device companies can run afoul of the FCPA, which prohibits corrupt payments to foreign officials for the purpose of obtaining or keeping business when distributing products in countries with health care providers employed by the government.
The government first made an inquiry with Smith & Nephew in 2007, when the DOJ and SEC asked it to investigate improper payments to government-employed physicians. The company, which is based in London but has a wholly owned U.S. subsidiary, conducted an internal investigation in response to the inquiry. The company disclosed that it had been selling its products through a Greek distributor and paying the difference between the full list price and distributor discount price to off-shore shell companies under the label of "marketing services." The distributor then used those shell companies to transfer cash incentives to Greek physicians who used Smith & Nephew orthopedic products for their patients. According to facts stipulated to in the deferred prosecution agreement, the company (and its U.S. subsidiary) was aware that the distributor was paying these bribes but continued the arrangement anyway. Therefore the company was held accountable for the payments made by the distributor as its intermediary.
Under the deferred prosecution agreement, the government will not pursue its charges as long as the company complies with its terms, including paying the $16.8 million fine, implementing remedial measures and cooperating with the government. The company will have to appoint an outside corporate monitor for 18 months, and its reporting obligations are set to last three years. In agreeing to a deferred prosecution, the DOJ took note of the fact that the company cooperated fully in the government's investigation, voluntarily disclosed the violation and took remedial measures including implementation of an enhanced compliance program.